PETALING JAYA: Despite a positive outlook on IHH Healthcare Bhd
, the recent strengthening of the ringgit could negatively impact contribution from its overseas markets.
In a report, CIMB Research said the ringgit appreciated against a number of currencies including the euro, Singapore dollar, Hong Kong dollar and the Turkyish lira, all of which are key foreign-exchange exposures for the healthcare group.
It added its sensitivity analysis on financial year 2023 (FY23) earnings before interest, taxes, depreciation and amortisation (Ebitda) reveals that a 5% to 20% appreciation of the ringgit against all these currencies could potentially reduce its Ebitda by about 4% to 15.9%.
“The lesser extent of the impact is primarily supported by Malaysia’s exposure, at 17% to revenue in FY23, which provides some shelter against the ringgit appreciation risks,” CIMB Research said.
The research house added IHH will focus on the premium market segment for private healthcare, thus partially mitigating the negative foreign-exchange impact by an increase in revenue intensity, as well as cost savings from medical equipment purchases.
On its positive view on IHH, CIMB Research said it believes FY24 is on track to be a record year, as its earnings for FY24, FY25 and FY26 are underpinned by a strategic focus on brownfield bed expansion, strong bed occupancy rates and a growth in revenue intensity across its core markets like Singapore, Acibadem (Turkiye and Europe), Malaysia and India.
The proposed acquisition of Island Hospital is also expected to give IHH a boost, with a 40% and 20% year-on-year growth in Ebitda for FY24 and FY25.
“The inclusion of Island Hospital into its portfolio in Malaysia is also expected to boost medical tourism revenue contribution from 7% to 12% in Malaysia.
“It will be leveraging Island Hospital’s strong presence in the medical tourism segment of 60% to 65% of revenue from medical tourism versus 20% to 30% for Gleneagles Hospital Penang,” the research house noted.
It added IHH plans to fund the acquisition via a 30:70 cash and debt split, and reiterates its expectation for it to be earnings accretive from year two onwards.
“Pending the completion of the deal, we have not factored in contribution from Island Hospital into our model. Note that its FY23 revenue of RM574mil is at around 2.7% of IHH’s group revenue.”
In line with that, CIMB Research said it will reiterate its “buy” call with a higher target price of RM8.50, as it believes IHH remains undervalued by the market in view of its defensive growth attributes.
“It will be supported by its high caliber and diversified asset portfolio and strong pricing power due to its premium market positioning,” it said.
“Risks include slower-than-expected margin improvement in India, country risks associated with its Turkyish operations and higher-than-expected losses from its China hospital.”
